Investing in the Future

CARE adopts a business mindset to recoup its investment in dormant donors

August 2006 By Amy Syracuse

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Mailing the inactives file seemed a promising solution. CARE defines inactives as donors who haven’t given in 24 months or more. Lapsed donors—those who haven’t given in 13 to 24 months—are considered separately and receive the regular renewal or housefile mailings.

When CARE looked at historical data, it realized reactivated donors could be just as valuable as new donors—if not more valuable—in terms of retention rate and average gift size. “[CARE] decided to pursue more in the area of these inactive donors in the fiscal year 2003,” says Wade. “We targeted primarily the 25-month to 60-month folks and … tried to go after more of those at the higher end.”

CARE’s initial fundraising efforts targeting inactive donors involved monthly mailings of its strongest performing direct mail packages, recalls Greg Buell, account director at Merkle|Domain. Three packages were used: CARE’s “Mega Mommy” control, a #14 envelope mailing focused on the feeding of children in need; “Children in Crisis” and “Status Unknown.” The latter two efforts also highlight CARE’s work in feeding impoverished children, but there are some differences in the copy and presentation. For example, “Children in Crisis” uses meal ticket vouchers to communicate the offer, while “Status Unknown” features photos of children whose futures are in jeopardy.

The packages were mailed to 25- to 72-month inactive donors, and had an average monthly mail volume of 350,000. The mailing cycle operated in quarterly blocks. “One package might mail July through September, and [CARE] might mail the same donor [the same package] all three months,” explains Buell.

This initial outreach to inactives was successful, says Wade. “In fiscal year 2003, [CARE] had a banner year in the volume of reactivated donors. We did what we knew to be effective at the time … but we realized in later years we could do even more.”



The Breakthrough
As changes were being made to the way CARE communicated with inactive donors, Erich Fasnacht, CARE’s director of direct marketing, introduced a new concept related to the charity’s fundraising efforts, from acquisition to renewals and reactivation. Fasnacht, who worked in strategy consulting before joining the nonprofit, was a key proponent within CARE for the use of net present value (NPV) to fine-tune targeting of donor segments.

NPV is a measurement frequently used by corporations to assess long-term investments. It can be calculated using the following equation:
NPV = total future payments (in CARE’s case, the expected revenue stream from a group of donors)
- minus initial cost (the cost of acquiring those donors)
- minus ongoing costs (the amount CARE expects to spend on maintaining the donors).

NPV differs from lifetime value in that it takes into account the organization’s expense to maintain the donor relationship. This allows CARE to identify those donor segments in which it is losing money over the long term because the cost of direct marketing and other expenditures exceeds the value of donations.

According to Fasnacht, such poor investments easily can be masked when looking at overall data, because donors with a high NPV cancel out the losses. However, by identifying an NPV for each segment of cumulative giving, CARE is able to see exactly where its direct marketing dollars are most profitable. What’s more, it can tailor its direct marketing efforts to the expected lifetime value of donors, thereby improving the NPV of each donor segment and increasing its overall revenue stream.

To calculate NPV for its inactive donor base, CARE divided inactive donors into groups based on cumulative giving. The groups ranged from under $5 to $1,000-plus. It then worked with Merkle|Domain to gather historical donor data for the costs and donations associated with each segment over a 15-year period.

“We took a snapshot of donors at different giving levels across different lifecycles,” says Fasnacht. “We then looked at how much we spent on donors in each of these categories over the next 15 years and how much they gave us, and added up costs and donations over that 15-year period.” The information was verified against five-year data, he adds.

In addition to calculating NPV, CARE used the data to establish the ratio of donors’ lifetime value to lifetime costs incurred by CARE. Using the Better Business Bureau benchmark that says it must raise $3 for every $1 it spends, CARE identified those donor segments with a lifetime ROI below 3-to-1 and those above it. “That tells us that … if there’s any better investment option out there, and we’re focused on 3-to-1, let’s not even go after any [segments] performing below the benchmark,” says Fasnacht.

Applying the Metrics
As a result of this analysis, CARE made some significant changes to the way it invested fundraising dollars allocated for donor reactivation from fiscal year 2004 to the present. According to Leo, the goal was to use NPV to segment CARE’s housefile more carefully and to identify those inactive donors who were worth a higher investment in their upfront reacquisition piece.

First, CARE divided its 25- to 60-month inactive donors into two groups: those with $5 to $99 dollar cumulative giving and those with $100 or more. It continued to mail the former group with monthly low-cost mailings, but began to use a greater variety of packages. CARE stopped mailing the three standard, inactive packages in quarterly blocks, so recipients would not constantly receive the same package back to back. To complement the standard packages, it also created versions of some of its housefile appeals that targeted inactive donors.

For those 25- to 60-month inactive donors with $100 or more cumulative giving, CARE actually increased direct marketing spending by adding new tactics to its marketing mix—tactics that were considerably more expensive than the standard direct mail packages but could be used a few times a year to reach high-value donors. One such tactic was telemarketing.

“When there’s a disaster that’s in the media—such as the tsunami or the Pakistan earthquake—we’ll actually get on the phone and call inactive donors,” says Buell. “You wouldn’t think for inactives that response rates are going to be that high … but they have actually done extremely well not only in responding on the phone but in fulfilling on those pledges.”

In addition, CARE established what it calls a “win back” package to reactivate high-value donors. The win back package includes a handwritten, signed notecard that reads: “Dear Mr. & Mrs. Smith, We haven’t heard from you in awhile. I hope you are well. Your support is sorely missed, and the need is still great. Please, can you help us again?” The package contains a stamped courtesy reply envelope. Its arrival is preceded by a pre-recorded message from Helene Gayle, CARE’s president, alerting the recipient that a special letter will soon arrive.

Buell notes that CARE’s win back packages have been a great boon to the reactivation program. “They have recently yielded 1.42 percent response rates and an average gift of over $110,” he says.

To determine the best candidates for such campaigns, CARE uses Target Tags predictive response models, a service provided by Cambridge, Mass.-based Target Analysis Group. It runs inactive donor names through Target Tags and receives a report that identifies those donors most likely to reactivate. Included with the report are details about how many charities the individual recently has given to, the dollar amounts he or she has given, and the consistency of giving.

“If there’s a person that gives to approximately five charities, they give $100 per year and have been giving for two years, that’s a great person for us to cultivate heavily … and to do special treatments for,” Fasnacht observes. “If it’s someone who never gave to charity before, and they give a $100 gift, that could easily be somebody who gave to the tsunami and won’t give to another charity for 10 years. That’s not a person to invest in.”

Target Tags has been particularly helpful in targeting high-value donors who are ideal for reactivation within the 61-plus month portion of CARE’s inactives file. Says Wade: “It opened up a whole new group of donors to target on a regular basis.”

The Results
According to Paul Leo, the use of NPV and other reactivation program changes did not affect CARE’s top-line marketing budget, but they did affect the way marketing dollars were allocated. “We spent a lot less on [low-value] donors … by mailing them less and contacting them less by phone,” he says. “The money that we’re saving, we put toward donors who are giving at a higher giving level. We’re simply investing where we think we are going to get a better return on our investment.”

To date, the strategy has paid off. CARE’s average gift from 25-plus month inactive donors has increased from $32.07 in fiscal year 2003 to $46.55 so far in fiscal year 2006. That’s an increase of 45 percent.

Buell adds that CARE’s progress is reflected in its overall revenue and NPV. “Between fiscal year ’04 and fiscal year ’05, the NPV of reactivated donors increased by 59 percent, which translates to an increase of over $3.6 million in total NPV for CARE,” he explains. “The long-term increase will go to help thousands upon thousands of people in need.”

The challenge moving forward is to continue to mine the right donors as CARE reactivates “the low hanging fruit,” digging deeper into its inactives file. Says Leo, “There is a lot of opportunity for creative innovation yet, and I definitely want to be exploring that area.” Wade adds that CARE may begin testing some special marketing tactics at lower thresholds of donor giving. “[CARE] needs to keep putting [itself] in the donors’ shoes and looking at each of those donor segments by the LTV and NPV to determine how much can [it] spend … knowing that [it’s] going to get this type of return and continuation rate.”

So, with all of this talk about returns, LTV and NPV, is selling brotherhood like selling soap? As in the business world, “direct marketing efforts are a cornerstone of CARE’s ability to realize its mission,” Fasnacht observes. But, while some of the strategies CARE uses are similar to those employed by large, commercial entities, the value of its direct marketing extends beyond NPV and ROI. The ultimate measure is the number of lives saved and people touched—and there isn’t a business metric in the world to encapsulate that.

Amy Syracuse is a London-based freelance writer.